Oakmont Company has an opportunity to manufacture and sell a new product for a f

Question

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 16%. After careful study, Oakmont estimated the following costs and revenues for the new product: When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)

Explanation / Answer

Details Year 0 Year 1 Year 2 Year 3 Year 4 Cost Of equipment       (170,000) NWC          (68,000)        68,000 Overhaul cost            (12,000) Salvage        16,000 Sales Revenue        330,000            330,000         330,000      330,000 Variable expenses      (160,000)          (160,000)       (160,000) (160,000) Fixed out of pocket expenses        (78,000)            (78,000)         (78,000)      (78,000) Net Cash Flows       (238,000)          92,000              80,000            92,000      176,000 PV factor @16%                 1.00               0.86                   0.74                0.64             0.55 PV of Cash flows       (238,000)          79,310              59,453            58,941        97,203 NPV= $ 56,907.12

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.